Canadian Debt Levels Increase in Q3 and are Expected to Keep Rising

Non-mortgage debt balances rose to $21,686 at the conclusion of the third quarter of 2016, according to TransUnion’s (NYSE:TRU) latest Canada Industry Insights Report, and TransUnion forecasts they will likely continue to rise over the next two years.

Canadian consumers saw average non-mortgage debt balances rise by 2.3% between Q3 2015 ($21,195) and Q3 2016 ($21,686). The provinces of Ontario (+2.6%) and Quebec (+3.6%) led the yearly increases in debt. TransUnion is forecasting a marginal increase of non-mortgage debt levels to $21,747 by the end of 2017; with an improved economic outlook, that reading may reach $22,000 by the end of 2018.

“Canadians continued to add debt in the third quarter, with balances increasing across most loan types,” said Jason Wang, TransUnion’s director of research and analysis in Canada. “The recent government outlook of weak economic conditions may have led some consumers to believe low interest rates will be here for a long time, which could result in pushing balances even higher due to low expected borrowing costs. With the latest data in hand, we think it’s especially important for lenders to continue monitoring and stress testing their portfolios to ensure they can maintain stable performance when interest rates do eventually rise.”

Stress testing is critical, because a recent TransUnion study found that 700,000 Canadians may not be able to absorb even a ¼-point interest rate hike. Up to one million consumers could be impacted by a full one percentage point rate hike.

Q3 2016 Regional Credit Performance

Geography

Average Consumer Non-Mortgage Debt Levels

Yearly Debt Level Pct. Change

90+ Day Delinquency (DQ) Rates

Yearly DQ Change

Canada

$21,686

2.31%

2.70%

3.04%

Alberta

$27,663

0.46%

3.13%

13.39%

British Columbia

$23,363

1.25%

2.59%

-0.41%

Ontario

$21,620

2.64%

2.73%

-1.18%

Quebec

$17,969

3.57%

2.12%

4.94%

Saskatchewan

$24,217

1.92%

3.46%

11.92%

While debt levels have increased, serious delinquency rates (90 days or more past due) have only risen slightly, from 2.62% in Q3 2015 to 2.70% in Q3 2016. Delinquency rates still remain below the average Q3 delinquency rate observed between 2012 and 2014 (2.85%).

The largest yearly delinquency gains have been in Alberta (+13.4%) and Saskatchewan (+11.9%), while Ontario (-1.2%) and British Columbia (-0.4%) have seen modest declines. TransUnion forecasts the overall Canada delinquency rate will improve to approximately 2.63% by the end of 2017, a 2.2% decline.

From a product perspective, average credit card balances per consumer have risen slightly to $3,954 (+2.0%) in the last year, while delinquency rates have risen 24 basis points to 2.26%. Installment loans continue to be a popular credit product, with balances rising 6.8% in the last year to $24,782 as of Q3 2016. This is a $2,200 increase from just two years ago. In that same time, serious delinquency rates for installment loans have dropped from 3.76% in Q3 2014 to 3.30% in Q3 2016.

“Delinquencies remain low on an overall basis, and that is a critical component for the larger Canadian credit picture,” said Wang. “It’s a sign that Canadians are largely able to manage their debts and make their payments on time every month. However, we will continue to monitor the trend for any potential signs consumers are having more difficulties managing their debt levels.”

Credit Unions Exhibit Strong Performance

TransUnion’s latest report also examined the credit union market and how consumer loans issued by credit unions are performing against the rest of the lending industry. As of Q3 2016, credit union loans exhibited much lower delinquency rates across the board.

Credit Union Loans Have Lower Delinquency Rates than Those Underwritten By Other Lenders

90+ Days Past Due

in Q3 2016

Underwritten By All Lenders

Underwritten By Credit Unions

Difference

Credit Cards

2.26%

1.92%

↓ 15%

Lines of Credit

0.81%

0.25%

↓ 69%

Installment Loans

3.30%

0.70%

↓ 79%

“With an overall market share in the 7% to 11% range, credit unions play an important role in consumer lending, and help provide Canadians an important source of liquidity. These lower delinquency readings clearly demonstrate prudent lending practices by credit unions and the value of the strong relationships and close community ties they have with their members,” said Wang. “At the same time, credit unions may want to review the balance between their risk appetite and growth goals, as these low delinquency rates may indicate opportunities to expand their lending activities while maintaining acceptable overall risk levels.”

Credit Unions’ Share of the Overall Lending Market

Consumer Loan Balances in Q3 2016

All Lenders

Credit Unions

Credit Unions’ Share

Credit Cards

$89.6 billion

$6.2 billion

7.0%

Lines of Credit

$197.0 billion

$22.2 billion

11.0%

Installment Loans

$132.0 billion

$13.0 billion

10.2%

More information about the Q3 2016 TransUnion Canada Industry Insights Report can be found here.

About TransUnion Canada Industry Insights Report

TransUnion’s Canada Industry Insights Report is an in-depth, full population-based solution that provides statistical information every quarter from TransUnion’s national consumer credit database, aggregated across virtually every active credit file on record. Each file contains hundreds of credit variables that illustrate consumer credit usage and performance. By leveraging the Industry Insights Report, institutions across a variety of industries can analyze market dynamics over an entire business cycle, helping to understand consumer behaviour over time and across different geographic locations throughout Canada. Businesses can access more details about and subscribe to the Industry Insights Report at http://www.transunioninsights.ca/IIR/.

About TransUnion (NYSE: TRU)Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion reaches consumers and businesses in more than 30 countries around the world on five continents. Based in Burlington, Ontario, TransUnion provides local service and support throughout Canada. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide. We call this Information for Good. Visit www.transunion.ca to learn more.